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Derivative Financial Instruments | 6 Months Ended
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Jun. 30, 2014
Derivative Financial Instruments | Note 10. Derivative Financial Instruments The following table presents the fair value and notional amount of derivative financial instruments held by us at June 30, 2014 and December 31, 2013.
|  | June 30, 2014 |  |  | December 31, 2013 |
(In Thousands) |  | Fair Value |  |  | Notional Amount |  |  | Fair Value |  |  | Notional Amount |
Assets - Risk Management Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 4 |  |  | $ | 4,000 |  |  | $ | 5,972 |  |  | $ | 268,000 |
TBAs |  |  | 3,294 |  |  |  | 498,000 |  |  |  | 1,138 |  |  |  | 241,000 |
Swaptions |  |  | 1,921 |  |  |  | 265,000 |  |  |  | 596 |  |  |  | 340,000 |
CMBX |  |  | 588 |  |  |  | 25,000 |  |  |  | - |  |  |  | - |
Assets - Other Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loan purchase commitments |  |  | 1,707 |  |  |  | 329,914 |  |  |  | - |  |  |  | 360 |
Loan forward sale commitments |  |  | - |  |  |  | - |  |  |  | 81 |  |  |  | 10,000 |
Total Assets |  | $ | 7,514 |  |  | $ | 1,121,914 |  |  | $ | 7,787 |  |  | $ | 859,360 |
Liabilities - Cash Flow Hedges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | (30,719) |  |  | $ | 139,500 |  |  | $ | (16,519) |  |  | $ | 139,500 |
Liabilities - Risk Management Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | (1,918) |  |  |  | 291,500 |  |  |  | (80) |  |  |  | 50,500 |
TBAs |  |  | (5,540) |  |  |  | 751,500 |  |  |  | (661) |  |  |  | 235,000 |
Futures |  |  | (494) |  |  |  | 126,000 |  |  |  | (528) |  |  |  | 162,000 |
Liabilities - Other Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loan purchase commitments |  |  | (45) |  |  |  | 49,565 |  |  |  | (379) |  |  |  | 42,562 |
Loan forward sale commitments |  |  | (1,121) |  |  |  | 245,905 |  |  |  | - |  |  |  | - |
Total Liabilities |  | $ | (39,837) |  |  | $ | 1,603,970 |  |  | $ | (18,167) |  |  | $ | 629,562 |
Total Derivative Financial Instruments, Net |  | $ | (32,323) |  |  | $ | 2,725,884 |  |  | $ | (10,380) |  |  | $ | 1,488,922 |
Risk Management Derivatives To offset, to varying degrees, risks associated with certain assets and liabilities on our consolidated balance sheet, we may enter into derivative contracts. In order to manage certain risks associated with residential loans, residential securities, and commercial loans we own or plan to acquire, at June 30, 2014, we were party to swaps and swaptions with an aggregate notional amount of $560 million, TBA contracts sold with an aggregate notional amount of $1.3 billion and financial futures contracts with an aggregate notional amount of $126 million. Net market valuation adjustments on risk management derivatives were negative $25 million and positive $51 million for the six months ended June 30, 2014 and 2013, respectively. Loan Purchase and Forward Sale Commitments LPCs and FSCs that qualify as derivatives are recorded at their estimated fair values. Net valuation adjustments on LPCs and FSCs were positive $4 million for the three and six months ended June 30, 2014, respectively, and are reported through our consolidated statements of income in mortgage banking activities, net. Derivatives Designated as Cash Flow Hedges To hedge the variability in interest expense related to our long-term debt and certain adjustable-rate securitization entity liabilities that are included in our consolidated balance sheets for financial reporting purposes, we designated certain interest rate swaps as cash flow hedges with an aggregate notional balance of $140 million. For the three months ended June 30, 2014 and 2013, designated cash flow hedges decreased in value by $5 million and increased in value by $14 million, respectively, which was recorded in accumulated other comprehensive income, a component of equity. For the six months ended June 30, 2014 and 2013, these cash flow hedges decreased in value by $14 million and increased in value by $21 million, respectively. For interest rate agreements currently or previously designated as cash flow hedges, our total unrealized loss reported in accumulated other comprehensive income was $30 million and $16 million at June 30, 2014 and December 31, 2013, respectively. For both of the three months ended June 30, 2014 and 2013, we reclassified less than $100 thousand of unrealized losses on derivatives to interest expense. For the six months ended June 30, 2014 and 2013, we reclassified $99 thousand and $157 thousand, respectively, of unrealized losses on derivatives to interest expense. Accumulated other comprehensive loss of less than $1 million will be amortized into interest expense, a component of our consolidated income statements, over the remaining life of the hedge liabilities. The following table illustrates the impact on interest expense of our interest rate agreements accounted for as cash flow hedges for the three and six months ended June 30, 2014 and 2013. Impact on Interest Expense of Our Interest Rate Agreements Accounted for as Cash Flow Hedges
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
(In Thousands) |  | 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |
Net interest expense on cash flow interest rate agreements |  | $ | (1,490) |  |  | $ | (1,470) |  |  | $ | (2,978) |  |  | $ | (2,934) |
Realized income (expense) due to ineffective portion of hedges |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Realized net losses reclassified from other comprehensive income |  |  | (39) |  |  |  | (69) |  |  |  | (99) |  |  |  | (157) |
Total Interest Expense |  | $ | (1,529) |  |  | $ | (1,539) |  |  | $ | (3,077) |  |  | $ | (3,091) |
Derivative Counterparty Credit Risk We incur credit risk to the extent that counterparties to our derivative financial instruments do not perform their obligations under specified contractual agreements. If a derivative counterparty does not perform, we may not receive the proceeds to which we may be entitled under these agreements. Each of our derivative counterparties that is not a clearinghouse must maintain compliance with International Swaps and Derivatives Association (“ISDA”) agreements or other similar agreements (or receive a waiver of non-compliance after a specific assessment) in order to conduct derivative transactions with us. Additionally, we review non-clearinghouse derivative counterparty credit standings, and in the case of a deterioration of creditworthiness, appropriate remedial action is taken. To further mitigate counterparty risk, we exit derivatives contracts with counterparties that (i) do not maintain compliance with (or obtain a waiver from) the terms of their ISDA or other agreements with us; or (ii) do not meet internally established guidelines regarding creditworthiness. Our ISDA and similar agreements currently require full bilateral collateralization of unrealized loss exposures with our derivative counterparties. Through a margin posting process, our positions are revalued with counterparties each business day and cash margin is generally transferred to either us or our derivative counterparties as collateral based upon the directional changes in fair value of the positions. We also attempt to transact with several different counterparties in order to reduce our specific counterparty exposure. With respect to certain of our derivatives, clearing and settlement is through one or more clearinghouses, which may be substituted as a counterparty. Clearing and settlement of derivative transactions through a clearinghouse is also intended to reduce specific counterparty exposure. We consider counterparty risk as part of our fair value assessments of all derivative financial instruments. At June 30, 2014, we were in compliance with ISDA and similar agreements governing our open derivative positions. We assessed the risk associated with these counterparties as remote and did not record a specific valuation adjustment.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5580258-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 + Details
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